45 Day Identification Period in a 1031 Exchange

45-Day Identification Period
Congratulations, you have close on your relinquished property! Now here comes the fun part. From the day of closing, you have 45 days to identify up to three properties that you would like to purchase as your replacement property. This is done very easily by filling out a form provided to you by us, your Qualified Intermediary. On this form, the requirement for listing the property is that it should be listed clearly enough with an address so the QI can get to the front door of the property.

What if you list 3 properties, but two of them have suddenly become unavailable? The 45-day form can be resubmitted as many times as needed as long as it's before day 45. The last copy received by day 45 is the one that you will need to purchase from. This means if some of the properties on your original form were sold, you can identify new properties as long as you are still within the 45-day identification period.

Should you decide to list more than 3 properties, you will then be required to follow the 200% rule. This is a situation we try and steer our clients away from, as it can turn out to be a pretty undesirable one. The 200% rule tells us that you can list more than 3 properties, but the total value of all properties listed must not exceed 200% (or 2X) the amount of the relinquished property. For example, if your relinquished property sold for $200,000 and you chose to list 4 properties on your 45-day form, the combined total fair market value of all 4 properties must not exceed $400,000. Even further, if the fair market value of those properties exceed 200%, then the 95% rule applies, meaning you need to purchase 95% of the total cost of all the properties listed. So Let's say you sold your relinquished property for $200,000. You decide to list 5 properties on your 45-day form, and the total combined fair market value of those 5 properties was $1,000,000. As you can see, that clearly is over the 200% rule, so now you would have to follow the 95% rule and purchase at least $950,000 of those properties. Because of these two rules, we suggest staying within the 3 property limit to avoid falling into the 200% or 95% rule.